TAILIEUCHUNG - Banks and Banking Business

The explicit characterisation of the impact of asymmetric information on the relationship between borrowers and lenders is a further approach to describing banks. This strand of the literature focuses on the prevalence of superior information with regard to the success of investment projects on the side of the borrower vis-à-vis the bank. The approach thus distinguishes between borrowers that are able to repay their loans and those that are not. The spread between loan and deposit rates in part insures the bank against the costs resulting from defaulting borrowers. 3 A similar approach focuses on the depositor-bank relationship, and. | PART I Banks and Banking Business 1 The Structure of the British Banking World 1 The problem in context The public tends to regard banks as comprising a single group. Usually banks are contrasted with rival institutions such as building societies finance companies and credit unions. In reality the banks themselves can be divided into a number of groups on the basis of different criteria. A discussion of the classification of the different types or categories of bank operating in the United Kingdom and of their respective organizations is of considerable importance as it provides the background to the analysis of the general legal principles governing the activities of banks in the United Kingdom in subsequent chapters. In classifying the different types of bank however the criteria that one might use tend to change over time and new criteria tend to emerge. For example it was once possible to differentiate between banks operating within the United Kingdom by reference to their geographical location separating the banks of England and Wales from those of Scotland and Northern Ireland. Nowadays this division seems increasingly inappropriate especially given the acquisition of the National Westminster Bank by the Royal Bank of Scotland and the merger of Halifax plc and the Bank of Scotland to form Halifax Bank of Scotland plc or HBOS plc which in turn was acquired by Lloyds TSB Bank plc in 2009 to form Lloyds Banking Group plc. Given the inability of geographical location to provide a satisfactory framework for classification an alternative might be to adopt a functional classification according to the respective business activities undertaken by the different banks. The increasing overlap in the business activities of banks that traditionally specialised in different aspects of banking business however creates certain difficulties in the way of this providing a sound conceptual basis for classifying British banks. Nowadays many banks are multifunctional institutions

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